WEBVTT - Citizens Financial Group CEO Bruce Van Saun Talks Banking

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<v Speaker 1>We've been talking a lot about the election, but before

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<v Speaker 1>we get there, runners will be off to the races

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<v Speaker 1>this Sunday at the New York City Marathon, and for

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<v Speaker 1>the second consecutive year, Citizens will be the official bank

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<v Speaker 1>of the race. The bank has also announced a one

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<v Speaker 1>hundred thousand dollars grand to help improve green spaces in

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<v Speaker 1>the city. For more on the race and the future

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<v Speaker 1>of Citizens, I'm pleased to say we're joined now by

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<v Speaker 1>Bruce Benson. He is Citizens Financial CEO. Bruce, it's great

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<v Speaker 1>to speak with you again. Interested to see, of course

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<v Speaker 1>that you're sponsoring the marathon for the second year in

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<v Speaker 1>a row, and it really lines up with this push

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<v Speaker 1>that Citizens has made into New York City in particular.

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<v Speaker 1>Where are you on that tell us about the progress

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<v Speaker 1>that you've made in New York City.

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<v Speaker 2>Yeah, so we have been at it now for two

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<v Speaker 2>or three years in New York and.

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<v Speaker 3>It's been really going well.

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<v Speaker 2>So I would say when we look at our regions,

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<v Speaker 2>it's the fastest growing region that we have in the system.

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<v Speaker 2>We're growing households at kind of mid single digits and

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<v Speaker 2>we're growing deposits at mid to high single digits. But

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<v Speaker 2>it certainly is an expensive market and there's a lot

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<v Speaker 2>of competition there, so we've looked for opportunities to elevate

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<v Speaker 2>our brand, and partnering with New York road Runners and

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<v Speaker 2>the New York Marathons such a distinctively New York experience

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<v Speaker 2>really has been beneficial to us.

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<v Speaker 4>I want to get to the rate environment here, Bruce,

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<v Speaker 4>because the FED is starting to cut obviously looks like

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<v Speaker 4>they're going to continue. Is that bad for you? Net

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<v Speaker 4>interest margins is something we instantly think about with banks

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<v Speaker 4>because obviously, especially a local bank will make all of

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<v Speaker 4>its money or the majority of it, from getting more

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<v Speaker 4>on loans than it pays on deposits.

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<v Speaker 3>Yeah, so it's a little complicated.

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<v Speaker 2>Actually, the banks typically are benefited from higher rates, but

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<v Speaker 2>we have different strategies to cope with lower rates, including hedges.

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<v Speaker 2>So I'd say we're pretty neutrally positioned at this point.

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<v Speaker 2>I think that there's other benefits from falling rates, and

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<v Speaker 2>you'd have to take into accounts. So first is it'll

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<v Speaker 2>stimulate more loan demand, so you'll get the volume effect

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<v Speaker 2>that will be beneficial. You also stimulate deal activity, so

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<v Speaker 2>capital markets fees should kick in more, and it's beneficial

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<v Speaker 2>to borrowers, particularly the more levered borrowers like commercial real

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<v Speaker 2>estate owners, will have a chance to refinance at more

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<v Speaker 2>attractive rates, So that'll be good for bank credit costs.

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<v Speaker 2>So you kind of have to look across to all

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<v Speaker 2>of the different ways that banks perform, and lower rates

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<v Speaker 2>I think are going to be beneficial, and that's one

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<v Speaker 2>of the reasons bank stocks have been performing recently, well,

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<v Speaker 2>last thirty days or so.

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<v Speaker 5>You know, Bruce Wee, we have right now price of

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<v Speaker 5>your stock over the last one year surging about eighty

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<v Speaker 5>two percent. Clearly investors look to citizens as a place

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<v Speaker 5>of stability here in a regional banking market where there

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<v Speaker 5>are a lot of other concerns. We have an amazing

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<v Speaker 5>story on Bloomberg right now about how for the first

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<v Speaker 5>time since the Great Financial Crisis, buyers of top rated

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<v Speaker 5>commercial mortgage backed securities are suffering losses with triple A

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<v Speaker 5>bonds going bust. How much more pain is there in

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<v Speaker 5>parts of this real estate market, especially in some of

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<v Speaker 5>these big cities that you're keeping an eye on, And

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<v Speaker 5>what might it mean for the industry.

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<v Speaker 2>Yeah, I would say, you know, all real estate is local,

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<v Speaker 2>so it certainly depends kind of where the properties are

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<v Speaker 2>located and what the tenant structure is.

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<v Speaker 3>If it's an office.

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<v Speaker 2>Location, office is really the area that has to readjust

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<v Speaker 2>so there has to be some losses recognized. You have

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<v Speaker 2>to take some stock out of circulation and basically get

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<v Speaker 2>supplied back to equal demand as companies need less office

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<v Speaker 2>space given the slow return to office trends and the

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<v Speaker 2>kind of permanence of hybrid work arrangements.

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<v Speaker 3>So that's going to play out gradually.

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<v Speaker 2>I think most banks are well reserved for their exposure there.

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<v Speaker 2>We feel we are, so I think it's not big

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<v Speaker 2>on the worry list these days from investors in bank

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<v Speaker 2>stocks that they've seen banks get.

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<v Speaker 3>Their arms around around around most surprises. Currently. It is

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<v Speaker 3>tough on the office segment, but banks are working work it.

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<v Speaker 1>Yeah, it seems definitely like investors have found other things

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<v Speaker 1>to worry about. To your point, I want to talk

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<v Speaker 1>a little bit about private credit here, private capital. It's

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<v Speaker 1>an area that you've highlighted as a potential opportunity for citizens,

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<v Speaker 1>especially when it comes to leverage lending.

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<v Speaker 2>There.

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<v Speaker 1>Where are you on that journey? How do you differentiate

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<v Speaker 1>from some of your peers, particularly in the regional space.

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<v Speaker 2>Yeah, so we've been focused on private capital for a

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<v Speaker 2>long time, so starting with private equity sponsors who increasingly

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<v Speaker 2>own more and more of middle market companies in America.

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<v Speaker 2>So you want to be able to service them, You

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<v Speaker 2>want to be able to show them deal flow, you

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<v Speaker 2>want to be able to finance their transactions. So I

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<v Speaker 2>think we're very well positioned for that. The more recent

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<v Speaker 2>emphasis has been on private credit, so as the private

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<v Speaker 2>equity folks look to expand their overall complexes, they're getting

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<v Speaker 2>into private credit and there's direct players in private credit,

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<v Speaker 2>and they're looking to finance more leverage transactions. In some

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<v Speaker 2>cases they're disintermediating banks, but in many cases banks don't

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<v Speaker 2>play at that end of the leverage spectrum. So banks

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<v Speaker 2>are looking to see how can we serve those players.

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<v Speaker 2>They need credit themselves, so can we lend to their

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<v Speaker 2>fun complexes in a safe and secure way. And I

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<v Speaker 2>also think that we've developed good relationships there and we're

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<v Speaker 2>also having opportunities to lend to those complexes.

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<v Speaker 3>So net I think we're positive.

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<v Speaker 2>As opposed to it being a worry beat in terms

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<v Speaker 2>of kind of opportunities leaving the banking system.

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<v Speaker 1>Right, Well, that's exactly where I wanted to go because

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<v Speaker 1>it seems like private credit that industry, in the banking

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<v Speaker 1>industry are kind of frontemies at this point. And my

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<v Speaker 1>question to you is going to be have you seen

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<v Speaker 1>private credit encroach on your territory? But just to crystallize

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<v Speaker 1>your point, it sounds like you're saying no, Yeah.

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<v Speaker 2>I mean, there will be some deals that we lose

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<v Speaker 2>but at the margin, But for the most part, we're

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<v Speaker 2>playing in our sandbox. They're playing in a slightly different sandbox,

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<v Speaker 2>and then they need banks to make their strategies go,

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<v Speaker 2>so you have to turn that kind of risk into

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<v Speaker 2>an opportunity.

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<v Speaker 5>I'm curious as we get into this part of the cycle,

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<v Speaker 5>when we get into a regular way bank lending to

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<v Speaker 5>consumers as well. Brus, I'd love for you to comment,

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<v Speaker 5>we saw a consumer sentiment really start to tick up

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<v Speaker 5>once again. Do you think that this could be a

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<v Speaker 5>bullish signal for ANII and lending moving forward? Do you

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<v Speaker 5>think people are ready to take on debt to start spending.

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<v Speaker 2>Well, I'd say there's a couple of considerations there. One is,

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<v Speaker 2>the higher rates have been an impediment from people wanting

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<v Speaker 2>to borrow, so as rates come down, that'll stimulate, I

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<v Speaker 2>think more more borrowing and lending. The other aspect has

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<v Speaker 2>been uncertainty, and so I think more broadly in the economy,

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<v Speaker 2>the election coming up and the prognosis are we going

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<v Speaker 2>into a soft landing? Are we going into a recession?

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<v Speaker 2>I think the more we see clarity on that we

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<v Speaker 2>get through the election, we have a better census to

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<v Speaker 2>is the economy holding up? It seems like it is.

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<v Speaker 2>That gives people more confidence. So I would say the

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<v Speaker 2>two things, less uncertainty, more conviction on the path of

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<v Speaker 2>the economy, and then lower rates. The combination all of

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<v Speaker 2>that should mean that there's going to be more loan

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<v Speaker 2>demand as we head into twenty twenty five.

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<v Speaker 4>All right, Bruce, great to get your take on these issues.

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<v Speaker 4>Great to have you on the program.

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<v Speaker 3>Thanks so much for joining us.

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<v Speaker 5>Bruce.

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<v Speaker 4>Fans on there of citizens Financial group. And are you

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<v Speaker 4>gonna run the marathon? No? Does either one of you run?

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<v Speaker 5>I do have I can't do more than that.

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<v Speaker 4>I know you run marathons, right.

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<v Speaker 1>Well, I was a middle distance runner in college, so

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<v Speaker 1>I like to keep the races shorter.

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<v Speaker 4>All right, we're they're saying, yeah, I like to keep

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<v Speaker 4>my race is very short.